Profitability Project: Landlord Vs. Commission

Which is best: owning a booth rental salon or an employment-based salon? From time to time, owners on each side of this fence look at the other scenario and think the grass is greener. The truth is, however, owning a business in today’s world is hard no matter which model you operate. It’s really just a matter of determining which one is right for you. Let’s take a look at both models:

Employment-based Salon. As the owner of either a salary- or commission-based salon, you are in control of your own destiny. You dictate your own culture, your strategic plan, the customer experience and how you market the salon and promote its products and services. But being in control of your own destiny also can be a burden. Today’s owners can’t open up shop and run it the way they did 30 years ago, and expect people today to simply want to be part of it. You have to drive the brand, and set the culture. You have to continue to create opportunity for your people and it’s your job to market and promote the salon, drive the business, and inspire, lead and educate the staff. But as the owner of an employee-based salon, you also have the greatest potential upside from a profitability and growth standpoint.

For the stylist, working in an employment-based salon offers a career path. Someone else takes care of the rent, taxes, purchasing and controlling the inventory, scheduling appointments, and driving customers in the door. In some salons, the product education, advanced training and even healthcare benefits are covered. The stylists can concentrate on creating great hair.

Booth Rental/Landlords. To maximize profitability in a booth rental salon—and let’s make the assumption that both the owner and the employees are paying taxes appropriately—it’s based on chair capacity and how much you can charge per chair in your market. It’s really no different than owning an office building—it’s a real estate transaction. If you can build a group of tenants who are self-starters, are responsible and pay their bills and taxes on time and who can generate their own clientele, it’s a model that can work. The downsides is, even though you are the owner, you really have no control – you can’t dictate when your stylists work, what they wear and what and how they sell retail. There is constant pressure on the business from competitors to keep rent low, and you have to constantly put money into the salon to keep it new and fresh and a place people want to work. And, even though you really have no control over the staff and how well they perform services, you still receive the customer complaints—because as the owner, the public views you as the boss.

For the stylist, working in a booth rental salon is really a lifestyle choice. They can come and go as they please, charge what they want to, work when they want and dress how they want. The downsides are they never know whom they will be working next to and what their professional standards will be, they have to buy their own products, and they are responsible for their own training, marketing, taxes and benefits.

So as the owner, do you want the challenge, but also the upside of building a great company and the profitability that comes with it? Or do you want the relative safety of the landlord model and just work about occupancy?

As long as you understand the model you are living in, there’s opportunity for success in both situations. But as we coach owners through Strictly Business, we find the ones who are really beating their heads against the wall are the owners who are trying to run their rental salon as if it is an employment-based salons. They are trying to manage the tenants as if they are employees, but they’re not—they are independent.

When owners come to us wanting to transition their rental salon into a commission-based model, we tell them they really have to prepare to start over. You may retain a few stylists, but chances are many will abandon you. It’s a really tough task, so the pain of change has to be less than the pain of staying the same. But it is possible, and it all starts with setting up the proper structure. You have to determine the successful processes you will need to hire, train and educate chair-ready hairdressers. Then you have to create the type of customer experience you want to have, and you have to set up systems for retail line selection, retail sales, marketing and promotions, customer followup and even social media. And, quite honestly, it’s going to take some money. Let’s take a look at one owner’s story and how he made that transition.

Luke Huffstutter, Anastasia Salon, Portland OregonYou might say Luke Huffstutter has beauty in his blood. His great grandmother was a stylist; his grandfather launched a distributorship; and his father continued to grow that distributorship before selling it to Maly’s. When Luke graduated from college in 2006, he and his father Vince bought an established, 18-chair booth rental salon, but it wasn’t the success they believed it would be. “In the first year, we did $128,000 in sales, spent about $140,000 and lost 8 renters,” says Luke.

To cover the salon’s overhead, the Huffstutters learned they needed to have 17 of the 18 chairs rented. “The strategies to recruit new leasers all included giving money away, which wasn’t an option if we wanted to become profitable,” says Luke. “And the rental price in our area was kept low because of competition. I felt like a slumlord, and culturally we found it difficult to hold the team to the standard we wanted to be known for.”

By 2007, Luke was contemplating quitting altogether before he learned about Summit Salon Consulting Group, signed up for a seminar and “bought into the model hook, line and sinker,” he says. “I hired a consultant to help me implement the systems, and we offered the 12 remaining renters the option to come on board as a commissioned stylist or continuing to work as a renter—three of them took us up on the offer. Simultaneously, we followed the Summit Associate Program and started growing commissioned stylists alongside our renters.”

In 2013, Luke is happy to report the salon is on track to do 1.4 million in gross sales, has 21 commissioned staff members, four renters and a full front desk team. “The transition wasn’t all roses, but I instantly felt relief knowing I had a plan in place and the opportunity to create a culture I was proud of with no glass ceiling.”

Frank Gambuzza is the owner of The Visage Group with four salon and spa locations in Knoxville, Tennessee. Scott Missad is the CEO of Gene Juarez, with 10 salons and two academies in Seattle, Washington. For more information about Strictly Business, the live education seminars founded by Gambuzza and Missad, or about the Summit Salons Consulting Group, contact Julie Oeffling at 800-718-5949.